Debate On The Challenges Of The South African Economy
As Presented By Finance Minister Pravin Gordhan
 By Roman Liptak MPL



Kwazulu-Natal Legislature Pietermaritzburg: Thursday, 5 August 2010




Mr Chairperson


I wish to thank the Hon. Minister for taking the time to join us in this Legislature and share his views on the economy.


I am going to measure the effectiveness of government spending in this province in as much as it impacts on a single activity in the micro economy, which the government itself strives to encourage by way of public investments into job creation.


We are all aware, as the Hon. Minister pointed out, that KwaZulu-Natal suffers from stubborn structural unemployment. This challenge is interlinked with other economic and social problems such as inadequate education, poor health outcomes and crime. As elsewhere in South Africa, in our province vulnerable groups are most affected by unemployment and the problem is most extreme for black youth.


The inconvenient truth is that the ratio of workforce participation in our economy is not increasing, the income gap is widening, and the abject poverty, both in the rural and urban areas, persists.


This is happening despite one grand government scheme after another, including the failure of black economic empowerment to reach the broad-base of the previously disadvantaged population, the misplaced focus on creation of unsustainable jobs through the Expanded Public Works Programme, and the lack of genuine support for the private sector, which alone could - and should - create sustainable jobs in our economy.


The inflexible labour laws and above-inflation wage settlements for the employed have resulted in higher costs for consumers and less chance of employment for the unemployed. These policies have created an economy and society with one of the highest unemployment rates and lowest workforce participation rates in the world.


While growth rates prior to the recession showed an encouraging rise, the economy had not been able to create sufficient numbers of sustainable jobs in the last fifteen years. The global economic meltdown has revealed to what extent the economic growth in post-apartheid South Africa has been driven by consumption. The credit crunch has restricted consumer spending, exposing the pre-recession growth as largely jobless.


Whereas prior to recession the economy merely failed to create enough new sustainable jobs, the slump has caused KwaZulu-Natal to shed some 200,000 jobs last year. To counter this trend, the provincial government directly created only 21,258 so-called “job opportunities” during the same period as part of its much lauded EPWP programme.


It is true that the number of these “job opportunities” created has almost doubled since 2005, when the initiative was launched in KwaZulu-Natal, the EPWP is not the answer to our unemployment problem. By definition, EPWP “job opportunities” are short-term, part-time jobs in which no or very little skills transfer takes place. They are not sustainable and rewarding jobs that help grow the economy and expand the tax base.


A response from the MEC for Public Works to my parliamentary question about the EPWP has revealed what we on the opposition benches have long suspected – that any single worker that is employed in more than one "job opportunity" is counted more than once. The duplication of beneficiaries means that in reality fewer people than the numbers provided by the provincial government have benefitted from the EPWP.


We believe that the funds provided for the EPWP programme should rather be used to extend the youth employment programme and, even more importantly, grant more assistance to small and medium enterprises by way of top-up wage subsidies for every new job created in the private sector.


The ANC has long objected to the wage subsidy on the grounds that it creates second class employees without the rights and benefits enshrined in the Basic Conditions of Employment Act. The Hon. Minister must admit that precisely that – only with the ruling party’s blessing.


We cannot keep pretending that we can deal with unemployment by continuing with the status quo. If we want inclusive growth that pulls millions of people out of poverty, we need to make this country and this province a better place in which to do business and create new employment opportunities of which low-wage jobs for inexperienced, unemployed young people are the most pressing concern.


This can only be done by attracting private investment into the job market. The money that government spends in the name of job creation is the same money that the private sector no longer has to spend to create jobs with.


The cost of doing business in South Africa remains high and is marked by a lack of competition, inadequate infrastructure, high input costs such as telecommunications, an inflexible labour market in most sectors of the economy and intrusive over-regulation. Private companies are spending too much money, time and resources to comply with these regulations. Our laws do not encourage private businesses to create jobs. They dictate to potential employers who they must employ and who they cannot employ. They also oblige employers to keep existing employees regardless of their productivity levels.


 As far as this government is concerned, it is more important that businesses comply with various equity quotas than that they actually turn a profit. This window-dressing has successfully spilled over into such areas as skills development and job training. For example, the SETAs have become convenient vehicles to demonstrate business compliance in contributing to the skills levy, but little serious apprenticeship and technical training have taken place.


This robs the private sector of money, time and resources that could have been more efficiently used by businesses to create jobs. Over-regulation acts like any direct tax and results in lost opportunity cost which translates into less jobs, products, value and wealth for everyone in the economy.


Mr Chairperson, government has no sensitivity to cost or price – as the inflated cost of public procurement shows. Government faces no competition or threat of going out of business by putting out a bad product – as many of its counter-productive policies have demonstrated.  Government can lose money every year and make up for it by simply raising taxes - as our unauthorised expenditure figures routinely prove.


The resources of the industrialised world were not all endowed; most were created by entrepreneurial effort within a congenial economic system. Entrepreneurial effort is not manufactured by social engineers. It must be allowed to take root naturally in an economic soil untainted by deliberate policy intervention.


At the heart of the economic success of industrialised countries is the understanding that the private sector is better at creating jobs than the government because it must heed market forces or go out of business.


The only thing that government could honestly propose to help create jobs is to remove those impediments that rob the private sector of the ability to create its own jobs. Reducing the size, cost and burden of over-reaching government will help. Reducing excess regulation and bureaucracy will help. Weakening the legal extension of sectoral bargains will help with wage moderation.


The effects of these measures will translate into the macroeconomic area where they can arguably reduce inflation, boost economic growth and enhance tax revenue. These, after all, are the objectives the Hon. Minister is himself striving to achieve.


I thank you.


Contact: Roman Liptak, 078 302 0929